Buffett goes hi-tech for first time

Updated: 
Picture of Warren BuffettUS magnate Warren Buffett has invested in tech stock for the first time and is now one of the largest investors in IBM, spending $10.7m and acquiring 5.5% of the business through his company Berkshire Hathaway.

You'll note he's avoided buying into anything trendy or indeed valued as worth more than any other tech company in the world (that would be Apple, of course) - so what's changed? Why is it now time to purchase IBM stock?

He told CNBC that he'd never seen a company the size of IBM stating what it planned to do and doing it as effectively before. There has to be more to it than this, of course, and it's worth looking at other companies which have tried to change what they do in mid-stream.

IBM PC


In the 1980s IBM developed a slower but recognisable version of the modern Windows PC. It was known for a very long time as the IBM PC or IBM-compatible (Apple being the incompatible version). Over the last decade it became apparent that there was little money in the PC world so IBM pretty much left it to Dell, moving into larger systems, software and services instead.

Other companies have tried the same trick and failed. It's worth considering the recent announcement by HP that it would do the same (only a year after buying its mobile products in with another acquisition), followed immediately by the sacking of the CEO who said it and a complete about-turn by the incoming replacement.

Buffett is right. Getting that sort of buy-in from the board and shareholders then manipulating a huge organisation takes a lot of doing and IBM deserves credit. But that's not the only reason he's invested or else he'd have bought somewhere else.

Other changes


The big company, already mentioned in this article, for corporate changes has been Apple. If someone had said 15 years ago that Apple - the second tier computer company - would be big in music, people would have assumed the speaker was getting confused with the Beatles recording label.

Turning the company from an esoteric computer maker into a producer of music products and lifestyle phones was an unbelievable feat of corporate re-engineering and leadership. There's a major difference, though.

Apple had Steve Jobs, a lot of razzmatazz (that is not a criticism) and was able to trumpet its achievements with the iPod, iPad and iPhone. It made huge amounts of noise and has been valued accordingly. From an existing shareholder's point of view this is stunning and it's why Apple has overtaken Microsoft as the most valuable technology company in the world.

For the potential investor it's different. A question that has to be asked by anybody sensible is: has Apple peaked in terms of market value? If you put money in will it actually grow?

The answer has to be that if it does, it will grow slowly. Apple has realised huge potential, and new investors want something whose potential is yet to come. This is why I believe Buffett has invested in IBM - it's done everything he says but it's done so quietly and he's hoping Wall Street has barely noticed yet. When the markets realise IBM, in spite of being 100 years old, is a new winner, the price will go up. My guess is that's when Buffett and anyone following him will start to sell.

SPONSORED FINANCIAL CONTENT